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Mar 19, 2016

G.R. No. 172349, June 13, 2012


Concepcion was hired by Polyfoam as an all-around factory worker and served as such for almost six years. One day, when Concepcion reported for work, he discovered that his time card was not in the rack and he was later informed by the security guard that he could no longer punch his time card. He was informed by his supervisor that the management decided to dismiss him due to an infraction of a company rule.

Hence, the filing of a complaint for illegal dismissal.

Gramaje later intervened, claiming to be the real employer of Concepcion. Gramaje claimed that P.A. Gramaje Employment Services (PAGES) is a legitimate job contractor who provided some manpower needs of Polyfoam and that Concepcion was hired as a packer and assigned to Polyfoam. She claimed no dismissal but that Concepcion simply stopped reporting for work.

LA found that Concepcion was illegally dismissed and holding Polyfoam and Gramaje solidarily liable for money claims.

On appeal, NLRC modified the decision by exonerating Polyfoam from liability and deleting the awards of backwages, 13th month pay, damages and attorney's fees. NLRC found Gramaje to be an independent contractor who had its own office equipment, tools, and substantial capital, and in fact supplied the plastic containers and carton boxes used by her employees in performing their duties. NLRC also found that Gramaje paid respondents wages and benefits and reported the latter to the SSS as a covered employee.

CA agreed with LA's conclusion that Gramaje is a labor-only contractor because of the following: (1) Gramaje failed to present its Audited Financial Statement that would have show its financial standing and ownership of equipment, machineries, and tools necessary to run her own business; (2) Gramaje failed to present a single copy of the purported contract with Polyfoam as to the packaging aspect of the latter's business; (3) Gramaje's licenses supposedly issued by the DOLE appeared to be spurious; (4) Gramaje was not registered with DOLE as a private recruitment agency; and (5) Gramaje presented only one SSS Quarterly Collection List whose authenticity is doubtful. The CA noted that petitioners are represented by only one law firm though they made it appear that they were represented by different lawyers.


1. Whether or not Gramaje is an independent job contractor
2. Whether or not an employer-employee relationship exists between Polyfoam and respondent; and
3. Whether or not respondent was illegally dismissed from employment


Contracting or subcontracting

Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor, and the contractor's employees, thus:

Art. 106. Contracting or subcontracting. – Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code.

There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

In Sasan, Sr. v. National Labor Relations Commission 4th Division, the Court distinguished permissible job contracting or subcontracting from labor-only contracting, to wit:

Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.  A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a)    The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;

(b) The contractor or subcontractor has substantial capital or investment; and

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.

Labor-only Contracting

In contrast, labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.  In labor-only contracting, the following elements are present:

(a)    The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility; and

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.[42]

 The test of independent contractorship

The test of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work.[43] In San Miguel Corporation v. Semillano,[44] the Court laid down the criteria in determining the existence of an independent and permissible contractor relationship, to wit:

x x x [W]hether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employers power with respect to the hiring, firing and payment of the contractors workers; the control of the premises; the duty to supply the premises, tools, appliances, materials, and labor; and the mode, manner and terms of payment.[45]

Simply put, the totality of the facts and the surrounding circumstances of the case are to be considered. Each case must be determined by its own facts and all the features of the relationship are to be considered.[46]

Gramaje is a labor-only contractor

Applying the foregoing tests, we agree with the CAs conclusion that Gramaje is not an independent job contractor, but a labor-only contractor.

First, Gramaje has no substantial capital or investment. The presumption is that a contractor is a labor-only contractor unless he overcomes the burden of proving that it has substantial capital, investment, tools, and the like. The employee should not be expected to prove the negative fact that the contractor does not have substantial capital, investment and tools to engage in job-contracting.[47]

Gramaje claimed that it has substantial capital of its own as well as investment in its office, equipment and tools. She pointed out that she furnished the plastic containers and carton boxes used in carrying out the function of packing the mattresses of Polyfoam. She added that she had placed in Polyfoams workplace ten (10) sealing machines, twenty (20) hand trucks, and two (2) forklifts to enable respondent and the other employees of Gramaje assigned at Polyfoam to perform their job.Finally, she explained that she had her own office with her own staff.[48] However, aside from her own bare statement, neither Gramaje nor Polyfoam presented evidence showing Gramajes ownership of the equipment and machineries used in the performance of the alleged contracted job.Considering that these machineries are found in Polyfoams premises, there can be no other logical conclusion but that the tools and equipment utilized by Gramaje and her employees are owned by Polyfoam. Neither did Polyfoam nor Gramaje show that the latter had clients other than the former. Since petitioners failed to adduce evidence that Gramaje had any substantial capital, investment or assets to perform the work contracted for, the presumption that Gramaje is a labor-only contractor stands.[49]

Second, Gramaje did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal, Polyfoam, its apparent role having been merely to recruit persons to work for Polyfoam.[50] It is undisputed that respondent had performed his task of packing Polyfoams foam products in Polyfoams premises. As to the recruitment of respondent, petitioners were able to establish only that respondents application was referred to Gramaje, but that is all. Prior to his termination, respondent had been performing the same job in Polyfoams business for almost six (6) years. He was even furnished a copy of Polyfoams Mga Alituntunin at Karampatang Parusa,[51]which embodied Polyfoams rules on attendance, the manner of performing the employees duties, ethical standards, cleanliness, health, safety, peace and order. These rules carried with them the corresponding penalties in case of violation.

While it is true that petitioners submitted the Affidavit of Polyfoams supervisor Victor Abadia, claiming that the latter did not exercise supervision over respondent because the latter was not Polyfoams but Gramajes employee, said Affidavit is insufficient to prove such claim. Petitioners should have presented the person who they claim to have exercised supervision over respondent and their alleged other employees assigned to Polyfoam. It was never established that Gramaje took entire charge, control and supervision of the work and service agreed upon. And as aptly observed by the CA, it is likewise highly unusual and suspect as to the absence of a written contract specifying the performance of a specified service, the nature and extent of the service or work to be done and the term and duration of the relationship.[52]

An Employer-Employee Relationship Exists
Between Respondent and Polyfoam

A finding that a contractor is a labor-only contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the labor-only contractor is considered as a mere agent of the principal, the real employer.[53] In this case, Polyfoam is the principal employer and Gramaje is the labor-only contractor. Polyfoam and Gramaje are, therefore, solidarily liable for the rightful claims of respondent.[54]

Respondent was Illegally Dismissed
From Employment

Respondent stated that on January 14, 2000, his time card was suddenly taken off the rack. His supervisor later informed him that Polyfoams management decided to dismiss him due to infraction of company rule. In short, respondent insisted that he was dismissed from employment without just or lawful cause and without due process. Polyfoam did not offer any explanation of such dismissal.It, instead, explained that respondents real employer is Gramaje. Gramaje, on the other hand, denied the claim of illegal dismissal. She shifted the blame on respondent claiming that the latter in fact abandoned his work.

The LA gave credence to respondents narration of the circumstances of the case. Said conclusion was affirmed by the CA. We find no reason to depart from such findings.

Abandonment cannot be inferred from the actuations of respondent. When he discovered that his time card was off the rack, he immediately inquired from his supervisor. He later sought the assistance of his counsel, who wrote a letter addressed to Polyfoam requesting that he be re-admitted to work. When said request was not acted upon, he filed the instant illegal dismissal case. These circumstances clearly negate the intention to abandon his work.

Petitioners failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of respondent. Neither was it shown that respondent was given ample opportunity to contest the legality of his dismissal. No notice of termination was given to him. Clearly, respondent was not afforded due process. Having failed to establish compliance with the requirements of termination of employment under the Labor Code, the dismissal of respondent was tainted with illegality.[55] Consequently, respondent is entitled to reinstatement without loss of seniority rights, and other privileges and to his full backwages inclusive of allowances and to his other benefits or their monetary equivalent computed from the time his compensation was withheld up to the time of his actual reinstatement. However, if reinstatement is no longer feasible as in this case, separation pay equivalent to one month salary for every year of service shall be awarded as an alternative.[56] Thus, the CA is correct in affirming the LAs award of separation pay with full backwages and other monetary benefits.

  • Permissible job contracting vis-à-vis labor-only contracting
  • The test of independent contractorship: totality of facts and circumstances
  • One who claims to be an independent contractor has the burden of proving substantial capital and/or investment
  • Independent contractor carries on an independent business
  • A finding of labor-only contracting creates an employer-employee relationship between the "principal" and the employee
  • Abandonment of work must be inferred from the actuations of the employee


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